Vildirect: IncomeTax-caselaws-2017-VIL-1526-ITAT-DEL

2017-VIL-1526-ITAT-DEL

Income Tax Appellate Tribunal DELHI

I.T.A .No. 87/DEL/2017

Date: 08.08.2017

TERADATA INDIA PVT. LTD.

ACIT CIRCLE-4 (1) GURGAON

For The Appellant : Sh. Nageshwar Rao, Adv
For The Respondent : Sh. T. M. Shiv Kumar, CIT DR

BENCH

SHRI N. K. SAINI, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDICIAL MEMBER

JUDGMENT

PER SUCHITRA KAMBLE, JM

This appeal is filed by the assessee against the order dated 29/11/2016 u/s 143(3) read with Section 144C of the Income tax Act, 1961 passed by Assessing Officer.

2. The Ld. AR submits that the assessee is only contesting Ground No. 4 & 5 related to interest on receivable interest on credit period granted by the Company under normal trade practices and once working capital adjustment is granted no separate adjustment on account of outstanding receivable is maintainable. The Ld. AR further submits that the assessee is also challenging Ground No. 14 & 15 related to depreciation. (Credit Tax).

3. As per the submissions made by the Ld. AR Ground No. 1 to 3 and Ground No. 6 to 13 & 16, 17 are not contested by the Ld. AR. Therefore, the same are dismissed.

4. “The contesting grounds in the assessee’s appeal are as follows:-

“1. That on facts and in law, the DRP/TPO/A.O have grossly erred by charging interest on credit period granted by the company under normal trade practices by:

i. Identifying outstanding receivables as a separate international transactions;

ii. by re-characterizing the nature of outstanding receivables as loan advanced to Associated Entities (“AEs”);

iii. By determining the Comparable Uncontrolled Price (“CUP”) method as the most appropriate method without providing any comparables uncontrolled transaction(s) thereby compromising the most fundamental rules and provisions laid down in the Act and the Rules to determine the arm’s length price of the international transaction;

iv. by applying an interest rate on outstanding receivable at a SBI Base Rate plus 300 basis points.

v. By ignoring the fact that account receivables arising from an international transaction are closely linked to the main transaction and should be benchmarked, using a combined transaction approach, by making working capital adjustment.

vi. By erroneously observing that Teradata India is remunerated in INR for provision of services i.e. contract R & D services and Global Consulting Center Services to the foreign AEs.

5. That without prejudice to the above, once working capital adjustment is granted no separate adjustment on account of outstanding receivables is maintainable.

14. That on the facts and in the circumstances of the case and in law, the Ld. DRP/A.O erred in disallowing a sum of Rs. 23,20,827/- as excess deprecation claim on fixed assets acquired by the Appellant from NCR Corporation India Pvt. Ltd.

15. That on the facts and circumstances of the case and in law, the Ld. Assessing Officer has erred in computing the demand of Rs. 11,29,66,370/-.”

5. The brief facts of the case are that Teradata Group Pvt. Enterprises provides Data Warehousing Solutions to customers around the world. As per the TP study submissions following additional functions are carried out by the assessee:

1. Serving as contract R & D Facility at Sikandarabad for Teradata- US which is global owner of all Teradata Intellectual property.

2. Posting Global Consulting Centers at Mumbai & Pune, Professional Support Services are provided and other non Indian Teradata Affiliates.

3. Teradata-US and Teradata Irland engaged TDI as contract manufacturing to build the hardware and configure to the specifications. TDI drop ships the systems to customer sides. Written in this case was filed on 30/11/2012 declaring the total income of Rs. 29,28,47,853/-.

Reference was made to the Transfer Pricing Officer in respect of international transactions enter into by the assessee. Vide order u/s 92CA(3) dated 28/1/2016 the TPO determine the Arms Length Price of the transactions and proposed an adjustment of Rs. 20,53,64,035/- which was incorporated by the Assessing Officer in his draft assessment order dated 1/3/2016 and the total income was proposed at Rs. 50,46,72,990/-. The assessee filed various objections before the DRP. The DRP decided the said objection while order dated 18/10/2016 the main contesting issue which is agitated in the present appeal are that of interest on receivables as well as depreciation.

6. The Ld. AR submitted that interest on receivables on the working capital cannot be taken into account in light of the decision of Hon’ble Delhi High Court in the case of Principal Commissioner of Income-tax Vs. Kusum Health Care Pvt. Ltd (ITA No. 765/2016 order dated 25/4/2017).

7. As relates to second issue relating to depreciation, the Ld. AR submitted that the said issue is also covered in light of the Tribunal’s order in the assessee’s own case for Assessment Year 2008-09 wherein the matter is referred to Assessing Officer to verify the claim of the assessee. Therefore, the same needs to be verified before the Assessing Officer.

8. The Ld. DR submitted that the assessee’s reliance on the case of Kusum Health Care Pvt. Ltd is not just and proper and the Ld. DR relied upon the order of McKinsey Knowledge Centre (P) Ltd. Vs. DCIT Circle-16(2), New Delhi 2017. In para 63 it is held as under:-

60. “Adjustment is in respect of international transaction of rendering services to the AE. Interest for the credit period allowed as per the Agreement is factored in the price charged for the rendering of services. In the oppugnation, the non-realization of invoice value beyond the stipulated period is a separate international transaction, whose ALP is required to be The Delhi Bench in Ameriprise India (P.) Ltd. (supra) and Techbooks International (P.) Ltd. (supra) did not approve the reasoning about such interest subsuming in working capital adjustment. It found that the working capital determined. Granting of working capital adjustment has been held to be confined to the international transaction of rendering of services, whose ALP is separately determinable. On the other hand, the international transaction of interest receivable from its AEs for late realization of invoices beyond such stipulated period is a separate international transaction. Allowing working capital adjustment in the international transaction of rendering services has been held to have no impact on the determination of ALP of the international transaction of interest on receivables from AEs beyond the stipulated period allowed as per the Agreement. In our considered opinion, whereas, the international transaction of purchase/sale of goods from/to AE contemplates comparison of the price charged/paid for such goods by impliedly including the interest for the period allowed for realization of invoices as per the terms of the agreement, the international transaction of charging interest on late recovery of trade receivable covers the period which starts with the termination of the period of credit allowed under the agreement, which is subject matter of the international transaction of purchase/sale of goods. There is one more fallacy in the argument about the subsuming of interest income in the working capital adjustment. It is simple that working capital adjustment is ordinarily computed by considering the average of the opening and closing values of inventories, receivables and payables. A transfer pricing adjustment on account of interest on delayed realization of invoice value has nothing to do with the closing or opening values. It depends on the period of realization on transaction to transaction basis. To put it differently, suppose an invoice is raised on 1st May; period allowed for realization is two months; and the invoice is actually realized on 31st December. Notwithstanding the fact that interest on such late realization would become chargeable for a period of 6 months (from 1st July to 31st December), but the amount of invoice will not be receivable as at the end of the financial year on 31st March. As such, this receivable would not have an impact on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months. Following the orders in Ameriprise (supra) and Techbooks International (supra), we uphold the view taken by the TPO on this issue. Interest on late realization of invoices is directed to charged in line with the directions given in the above orders of the Delhi Bench of the Tribunal.”

9. We have heard both the parties and perused the relevant case laws along with order of TPO, DRP & A.O. In respect of first issue the Ld. AR relied upon the order of jurisdictional High Court in case of Kusum Health Care Pvt. Ltd. wherein it is held as under:-

10. The Court is unable to agree with the above submissions. The inclusion in the Explanation to Section 92B of the Act of the expression ‘receivables’ does not mean that de hors the context every item of ‘receivables’ appearing in the accounts of an entity, which may have dealings with foreign AEs would automatically be characterised as an international transaction. There may be a delay in collection of monies for supplies made, even beyond the agreed limit, due to a variety of factors which will have to be investigated on a case to case basis. Importantly, the impact this would have on the working capital of the Assessee will have to be studied. In other words, there has to be a proper inquiry by the TPO by analysing the statistics over a period of time to discern a pattern which would indicate that vis-a-vis the receivables for the supplies made to an AE, the arrangement reflects an international transaction intended to benefit the AE in some way.

11. The Court finds that the entire focus of the AO was on just one AY and the figure of receivables in relation to that AY can hardly reflect a pattern that would justify a TPO concluding that the figure of receivables beyond 180 days constitutes an international transaction by itself. With the Assessee having already factored in the impact of the receivables on the working capital and thereby on its pricing/profitability vis-a-vis that of its comparables, any further adjustment only on the basis of the outstanding receivables would have distorted the picture and recharacterised the transaction. This was clearly impermissible in law as explained by this Court in CIT v. EKL Appliances Ltd. (2012) 345ITR 241 (Delhi).

The issue in the present appeal is also identical therefore, squarely covered by this judgment in favour of the assessee. Therefore, Ground No. 4 & 5 are allowed.

10. As relates to Ground No. 14 & 15, similar issue was raised in AY 2008- 2009 which was remanded back to the Assessing Officer to verify the claim of depreciation by the Tribunal vide order dated 01.08.2016 in ITA No. 791/Del/2013. The extract of the said order is as follows:-

“11.4 The Ld.AR submitted that the Ld.AO on one hand accepted the difference in the liability but he submitted that the differential amount between the purchase consideration and the value as per the valuation certificate did not accelerate the difference in the fixed assets. He submitted that the differential amount between the purchase consideration and the value of assets as per the valuation certificate has to be transferred to capital reserve as it represents the actual cost of assets to the assessee and the depreciation should be fully allowed on the same.

11.5. On the contrary the ld.AR relied upon the orders passed by the authorities below.

11.6. We have perused the orders passed by the authorities below and the arguments advanced by both the parties. It is seen that the Ld. AO had taken different figures for calculating the value of fixed assets. We accordingly set aside the issue to the Ld. AO to verify the claim of the assessee as per law.”

Thus on similar line in the present Assessment year also the Assessing Officer is directed to verify the claim of the assessee as per law. Therefore, Ground NO. 14 & 15 are partly allowed as the matter is remanded back to the Assessing Officer to verify the said claim.

11. In the result, appeal of the assessee is partly allowed for statistical purpose.

Order pronounced in the Open Court on 08th August, 2017.

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